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Transforming Microfinance: A Christian Approach
Transforming Microfinance: A Christian Approach
Transforming Microfinance: A Christian Approach
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Transforming Microfinance: A Christian Approach

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A unique book which chronicles the revealing ‘story' of microfinance, captures the rich diversity of the industry and explores the invaluable contribution of the Christian faith to this vibrant and fast-growing multi-billion dollar global business.
LanguageEnglish
Release dateJul 1, 2013
ISBN9781911372585
Transforming Microfinance: A Christian Approach

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    Transforming Microfinance - Makonen Getu

    CHRISTIAN MICROFINANCE: AN INTRODUCTION

    MAKONEN GETU

    Makonen Getu (Ph.D.) is Vice President of International Business Development at Opportunity International. Makonen has also taught at both under- and post-graduate levels in development studies at Stockholm University and the Oxford Centre for Mission Studies, where he currently examines and supervises Ph.D. scholars. Makonen has published several books, pamphlets and articles on topics related to development, foreign aid, microfinance, HIV/AIDS, human trafficking, faith and development.

    P

    URPOSE

    During the last 4-5 decades, microfinance has been implemented throughout the developing world as a poverty reduction tool by various NGOs, microfinance institutions, grassroots associations and governments fully supported by international donor agencies. A large number of these players constitute faith-based microfinance institutions (FBMFIs). The purpose of this book is to provide a forum for five CMFIs to share on their own terms and in their own language why and how they implement their respective microfinance programmes.

    M

    ETHODOLOGY

    In addition to the introductory part, this book is made up of seven chapters. Chapter two provides a brief history of modern microfinance. Chapters three, four, five, six and seven present case studies¹ of five different CMFIs while chapter eight provides a response to microfinance criticism from a Christian perspective.

    Prior to the writing of the book a study plan was formulated by the editor outlining the common themes of each case study and presented to each author for review. The study plan covered several areas including history, vision, mission, core values, organizational structure, clients served and products offered, technology applied, interest rates and fees charged, lending methodology, funding, impact, Christian standards and challenges. Although not necessarily in the same order, the authors cover all the aspects listed here in their respective papers.

    The case studies are neither evaluative nor critical. They are neither based on rigorous research nor are the authors external researchers. The studies are descriptive in nature and are written by practitioners close to the programmes described. Moreover, the data used has been gathered internally using first-hand experience, reports, programme and policy documents, minutes, training manuals, and evaluation/impact studies. These features are likely to cause some degree of subjectivism and bias. Some parts might even sound somewhat promotional as the authors struggle with the problem of balancing passion and objectivism.

    The overall intention of the book is not to produce a vigorously researched impact study on Christian microfinance (CMF). It is rather to create a space for the practitioners of CMFIs to express why and how they do microfinance. The strength of this book is, therefore, in the descriptive introduction of the CMF practice as a sub-sector of the microfinance industry in the way CMFIs perceive and do it. It is about how CMFIs see themselves, their work and their contribution. In this way, the reader will know about what CMFIs are doing and how they are doing as they tell their stories and get a better understanding of the role Christians play in fighting poverty through microfinance that the current literature fails to delineate in a distinctive manner. The information provided will also correct some possible misconceptions people have about the microfinance industry in general and CMFIs in particular.

    A

    BSTRACTS

    The five CMFIs covered in this book are: Opportunity International, Vision Fund International, Five Talents, Hope International and Faulu Kenya.² Opportunity has been in business since the early 1970s and is, therefore, the oldest and by far the biggest, while the other four emerged at different points in the 1990s. The table below provides a summary of programme statistics in respect of each CMFI.

    The paper in chapter three by Makonen Getu and GenzoYamamato presents the microfinance programme of Opportunity International (Opportunity). Opportunity has been in the business of helping people living in poverty to expand and start businesses and create employment for their neighbours, and generate income for themselves and their families since 1971. Co-founded by two Christian philanthropists, Al Whittaker from USA and David Bussau from Australia, Opportunity gave its first loan to a client in Bogota, Colombia and currently serves over 4 million voluntary depositors and borrowers through 53 Implementing Members in 23 countries across Africa, Asia, Eastern Europe and Latin America involving a portfolio of over $542 million repaid at the rate of 95% and a total savings portfolio of about $114 million. About 6 million people have received both financial and non-financial training and about 4 million hold insurance policies. About 93% of the active clients are women.

    Programme statistics of the 5 CMFIs

    Motivated by the love of Jesus Christ and led by its core values Commitment, Humility, Respect, Integrity, Stewardship and Transparency, Opportunity engages about 18,000 professionals and support staff globally to bring about lasting transformation of lives among people living in poverty using microfinance as the means.

    Like most of the MFIs in the industry, Opportunity focused on providing credit and related financial as well as non-financial training during the first 30 years of its existence. In the 21st century, however, Opportunity has moved from:

    •Offering a single financial product to offering a comprehensive range of products consisting of loans, savings, money transfers, and insurance

    •Running non-regulated microfinance NGOs to establishing and operating 11 regulated commercial banks and deposit-taking institutions in which it has majority ownership, (iii) being urban-based to being rural-based

    •Focusing on the trading and service business sector to having a multi-sector approach and providing services to support agriculture including value chains, housing and land, health, education, water and sanitation, energy and cottage industry

    •Focusing on women to including minorities, disabled people, people with HIV/AIDS, children and youth

    •Focusing on micro-entrepreneurs to including SMEs

    •Not offering insurance products to establishing and operating the world’s leading micro-insurance agency known as MicroEnsure (a subsidiary solely owned by Opportunity) which provides services not only to Opportunity’s clients but also to the clients of other MFIs and organizations

    •Employing a basic MIS to applying the latest technology in delivering its services not only to the poor in easy-to-reach places, but also in the difficult-to-reach areas with cheaper, faster and reliable delivery channels, including mobile vans, ATMs, POS devices, GPS mapping of smallholder farmers, customized CRM systems, and cell-phone banking,

    •Focusing on developing individuals to developing families and communities

    The authors also present some of the major challenges faced by Opportunity. These include understanding and engaging client needs ever more deeply, optimizing human resource management internally, network standardization and consolidation, strategic expansion, facilitating and measuring transformation as well as external factors including policy environment and economic recessions.

    Also presented are Opportunity’s Christian values and standards: Opportunity’s vision, mission, core values, motivation, services, accountability, and impact measurement are all rooted in and driven by Christian principles. Opportunity’s work is in response to God’s calling to serve people living in poverty through the facilitation of sustainable and wholistic transformational development.

    The authors conclude that despite the challenges, Opportunity has been able to make substantial achievements by: (i) applying a client-centric approach, (ii) investing in innovation and technology, (iii) investing in organizational development and capacity building, (iv) focusing on transformation, (v) partnering with other service providers, and (vi) building good relationships with donors and host governments.

    Chapter four by Tom Sanderson presents a description of Five Talents’ microfinance programme. Five Talents (FT) was established by the worldwide Anglican Church in 1998 with a vision to help the poorest and empowering them in practical ways to bring hope. The inspiration was derived from the Parable of the Talents in Matthew 25:14-30 and its mission is to fight poverty, create jobs and transform lives by empowering the poor in developing countries through innovative savings and microcredit programs, business training and holistic development.

    Since its inception in 1998, FT has impacted about 500,000 people, directly and indirectly, through its basic business training, savings and small loans. Currently FT operates through 11 local partners in 11 different countries and has 40,000 clients globally with an outstanding loan portfolio of about $3 million and accumulated savings of about $1.2 million. FT primarily provides savings and loan products offered through groups. Since FT is not a licensed deposit-taking institution, the savings are mobilized by informal groups known as Accumulated Savings and Credit Associations (ASCAs) and Village Savings and Loans Associations (VSLAs) formed by the clients themselves.

    FT’s role in this regard is to formalize and professionalize smaller microfinance NGOs to help them reach or move towards operational sustainability. The other products consist of financial literacy and business training. FT does not provide insurance products itself. However, some of its partners have linked up with local insurance providers to protect loans in the event of death or serious injury.

    Tom Sanderson points out that while FT recognizes the number of people served as important its principal focus is on livelihood impact, transformation and serving the excluded and provides examples of impact on children, clients, employees, families and gender and markets. In this regard, FT’s tag-line has become "smaller, poorer, riskier" providing smaller loans to poorer people in more risky circumstances.

    Sanderson also describes the Christian distinctives as manifested in FT’s work as follows: FT was a church-based initiative, the name Five Talents drawn from the Parable of Five Talents signals its Christian identity, the board of directors and staff profess the Christian faith, the motivation and energy is inspired by Jesus’ compassion and priority for the poor, prayers, witnessing as appropriate opportunities arise and working with and through the local Anglican Church.

    In the last part of his paper, Sanderson discusses three challenges faced by FT: (i) debt forgiveness expected by clients struggling with the repaying of their loans emanating from the prayer, Lord forgive us our debts as we forgive those who have debts against us, (ii) human capacity related to the problem of finding qualified branch managers, loan officers, accountants and board members particularly in rural areas and (iii) financial constraints as raising donations required for expansion, new branches and new programs often outstrips resources.

    In chapter five, Richard Reynolds and Nate Brown describe the work of VisionFund International (VFI). This is a subsidiary of World Vision International (WVI) established in early 2000 to manage and own all the microfinance institutions initiated and supported by WVI in 35 countries. Although some of its partners provide savings and insurance services, VFI is primarily focused on the provision of credit. Over 80% of the loans are for business. Other non-business loans include housing loans (approximately 10%) and school fee loans where clients can demonstrate a clear impact on the lives of children. VFI is part of a child-focused organization and seeks to enhance sustained wellbeing of children and fulfilment of their rights within families and communities.

    The microfinance intervention is planned and implemented as an integral part of World Vision’s wider effort to enhance community development within the context of its Area Development Program (ADP). The primary purpose of WVI is to promote human transformation, seek justice and bear witness and the microfinance services provided through VFI to support businesses is an additional expression of God’s love and witness to His Kingdom. By September 2012, VFI had served about 700,000 active borrowers of whom 68% were women.

    The products for which the loans are used include: agriculture/livestock, trading and services, cottage industry, housing and school fee loans. Voluntary savings mobilization is seen as complex and risky and is therefore not a common practice. The same applies to insurance services that are limited to the provision of life insurance whereby the loan amount is repaid in case of death.

    Non-financial services are carried out by both the WVI national offices and the VFI-managed MFIs. The former provides general training on community development (health, nutrition, HIV/AIDS, malaria, and family life), relief and emergency matters while the latter focuses on client education related to financial literacy and business skills. Each of VFI’s partners has its own well-developed MIS utilizing everything from simple spreadsheets to sophisticated multi-faceted systems. In some countries, such as Kenya and Uganda, mobile banking is being used to make payments while the utilization of mobile devices for collecting data is being piloted in Tanzania and Cambodia.

    The three lending methodologies employed by VFI include: community banks of 15-30 members, solidarity groups of 3-6 members and individual loans. As regards impact, the authors demonstrate that VFI’s over-arching goal is to achieve sustained well-being of children within families and seeks to see that girls and boys enjoy good health, are educated for life, experience the love of God and that their neighbours and are cared for, protected and participating. VFI sees these as necessary measures of success but not sufficient. Indicators that express the power of God’s love, community well-being, regard to God’s creation – also need to be considered.

    Some of VFI’s Christian distinctives include seeking to follow Jesus in all that it does, being from diverse Christian traditions – Catholic, Orthodox and Protestant, incorporating Christian witness in its operations, supporting the spiritual development of its staff, viewing products and services as one piece of holistic development, establishing God-honouring relationships, seeking to provide hope to clients with its products, understanding and valuing a diversity of beliefs and faith traditions, encouraging and incorporating prayer in the lives of staff, and being complementary to the church. The main challenges the authors identify as facing VFI are cultivating a diverse staff from varied faith backgrounds, maintaining its Christian identity amidst a diversity of opinions, and reducing the potential for fraud.

    Chapter six by Peter Greer and Anna Haggard, presents Hope International’s (HOPE) programme. HOPE officially registered its first microfinance institution in 1998, when Calvary Monument Bible Church from Central Pennsylvania realized that its hand-out project implemented since 1991 in partnership with a sister church in Zaporozhe, Ukraine, was found harmful to long-term sustainable development and decided to embark on a hand-up initiative and one of the leaders, Jeff Rutt, offered 12 individual loans to entrepreneurs in the Church. HOPE’s primary purpose is to use microfinance as a tool for alleviating physical, spiritual and social poverty and is committed to share the Gospel of Jesus Christ unashamedly, respectfully, and sensitively. It includes Christian teaching and principles in every aspect of its work.

    The paper describes the different stages of HOPE’s growth and conception, their view of poverty and core values which are rooted in broken relationships and God’s love respectively. In addition to spiritual and financial education, HOPE offers a variety of services to economically active people living in poverty engaged in savings and credit associations, micro-enterprises and SMEs through ROSCAs, ASCAs, and SSGs (Straight Savings Groups)³ for savings and through community banks, solidarity groups and individual loans. Today, HOPE serves 450,000 clients through its network of microfinance and church-based savings programmes in 16 countries. About 88% of HOPE’s clients are women.

    The paper also points out that proclaiming and obeying Jesus Christ is at the heart of HOPE’s mission and demonstrates in detail that some of its Christian distinctives: (i) a prayerful dependence upon the Holy Spirit for eternal impact, (ii) including spiritual integration and effective outreach in specific country-level planning, (iii) recruiting Christian staff, (iv) a commitment to spiritual formation for its staff and clients, (v) partnering with the local church, (vi) a commitment to funding its mission in ways that enhance the proclamation of the Gospel.

    As regards challenges faced by HOPE, the paper shows that these emanate from HOPE’s choice of working in hard places and its Christ-centred identity. In the former case, the challenges include (i) foreign exchange risk due to fluctuating currency values caused by economic instability, and (ii) difficulty in getting approval for registration caused by political instability and civil war. In the latter case, the challenges include (i) difficulty in accessing funding from corporations and secular foundations caused by HOPE’s overt Christian mission, and (ii) difficulty in recruiting employees who are both a technical and mission fit for its Christian niche and particular dedication to working in challenging environments.

    John Mwara’s and Jacqueline Nyaga’s paper, chapter seven, presents the operations of Faulu Kenya (FK). This paper is somewhat different from the other four papers as it deals with a local CMFI with a programme within one country. FK started in 1991 as a programme of the American-based NGO, Food for the Hungry, to offer financial services on a sustainable development approach and became the first regulated deposit-taking MFI in Kenya in 2009. The vision is giving Kenyans hope and a future and the mission is to listen and empower Kenyans by providing relevant financial solutions in line with its Christian ethos. The first core value relates to the Lord Jesus Christ that is exemplified by hard work, love, compassion and commitment in the transformation of lives by being plugged in to God himself.

    The authors give a detailed account of the different financial and non-financial products offered through group and individual methodologies. Currently, FK serves over 396, 650 urban and rural-based customer accounts through 101 service outlets comprising 27 banking branches operated by more than 800 staff members. By November 2012, FK had an outstanding loan portfolio of $54 million and $41 million in deposits. During 2010-2011, over 19,000 lives were covered under FK’s health insurance scheme and a total of 50,000 were trained in financial education. In 2011, the gender composition of FK’s clients stood at 55% and 45% for males and females respectively.

    In terms of sectors, FK targets micro, small and medium businesses in the manufacturing (e.g., metal, food and cloth works, light industries), agriculture, commerce, and service sectors, of which the latter two constitute about 93% and agriculture about 7%. The success of FK has partly depended on its continued investment in modern technology including an e-loan product in 2009, mobile phone banking in 2010, the T24 banking system and other key channels. Its marketing and branding strategy with the tagline, Your Bridge to Success, has also contributed to its recognition as a significant market player in the Kenyan financial sector.

    Despite its overall success, FK has faced several challenges some of which relate to (i) stagnated business performance following the post 2007 general election and recurring drought, (ii) poor infrastructure in the areas with the highest target customers making reaching the unbanked difficult, and (iii) staff capacity gaps created by transformation to a deposit-taking business model as most of the staff had a credit-only microfinance background.

    In Chapter two, Makonen Getu provides a brief history of modern microfinance in general and in chapter eight he presents a response to current microfinance criticism from a Christian perspective by using the five case studies in a synthesized way.

    D

    EFINITIONS

    For practical purposes, CMF is defined as a microfinance programme motivated, designed, implemented, monitored and evaluated with God’s love and purpose at the centre and is undertaken by Christian organizations and individuals to provide the economically active poor with access to financial and non-financial services in their fight against poverty. In other words, CMF is about the provision of financial and non-financial services to people living in poverty to enable them to expand or start economic and social businesses to create income and employment opportunities for themselves, their families and communities with a vision, mission, values, standards, and practices rooted in Jesus Christ’s call to love and serve people living in poverty. As discussed below, the core business of CMF can be synthesized as providing individuals, families and communities with opportunities for deep seated transformation. A CMFI is, therefore, an institution that is implementing microfinance programmes with a Christian ethos as a means of realizing sustainable transformational development in response to the call of Christ. It is the work of CMFIs that constitute CMF.

    However, CMFIs are not:

    1.Discriminatory – they love, respect and serve all people regardless of religion, creed and gender,

    2.Proselytizers – they do not evangelize⁴ nor attempt to use financial services to coerce conversion,

    3.Denominationally affiliated – they embrace ecumenism,

    4.Exclusivists – they work among and in partnership with non-faith-based MFIs and other development players by actively participating in and contributing to all types of microfinance movements and networks at global, regional and national levels.

    M

    OTIVATION AND VALUES

    The microfinance work of CMIs is motivated and inspired by the love of Jesus Christ. All they do is in response to God’s call to serve people in poverty by giving food to the hungry, water to the thirsty, clothing to the naked and shelter to the homeless.⁵ Herein is the root of the mission of CMFIs: to fulfil God’s will for people living in poverty through the provision of financial and non-financial services in accordance with Christian values and principles which inform and direct the way they do business. To cite some, Opportunity’s core values relate to commitment, respect, humility, integrity, stewardship and transformation. HOPE’s corporate cultural statement includes: prayer, allegiance, service, stewardship, innovation, optimism and nurturing. These are principles to help HOPE in conducting business in a Christ-like manner. VisionFund’s core values include seeking to follow Jesus, a commitment to people living in poverty, valuing people, stewardship, partnership and responsiveness.

    S

    PIRITUAL DIMENSION

    Although there is now a general recognition that poverty is multi-dimensional in nature, the conventional focus is still on the material dimension. CMFIs view poverty as having not only material and social dimensions, but also a spiritual dimension. CMFIs’ raison d’etre is wholistic and sustainable transformation of lives and communities in line with Christian values and principles. As such, CMFIs contend that poverty can be effectively reduced only through a wholistic development approach which addresses both material and spiritual poverty, not only the former as is conventionally the case. Poverty alleviation measures, including microfinance, therefore, seek to improve the spiritual and mental well-being of people living in poverty. Why do CMFIs find the spiritual dimension such an important component of human flourishing? There are three main reasons:

    1.Christian faith instils in people new values that, in turn, improve character, attitudes and behaviour. It enhances the level of integrity, responsibility and performance among people.⁷ As a result of the spiritual transformation they experience, clients often become more effective in their business, and more transparent and reliable borrowers. In other words, business performance (economic transformation) and spiritual transformation are complementary and intertwined. CMFIs do not perceive these as two opposites but as two sides of the same coin.

    2.The stronger and deeper their Christian faith, the more motivated they are by the love of Christ, the more love, forgiveness, mutual care and mutual trust clients extend to one another. Human relationships are restored and strengthened resulting in reconciliation, harmony and peace among community members and groupings, thereby creating a favourable socio-economic environment for sustainable transformational development.

    3.While this is the conceptual rationale CMFIs seem to lay for the positive impact of spiritual transformation as part of the poverty reduction effort, many of the CMFIs neither engage in direct evangelization nor do they see that to be their niche. They rather demonstrate the love of Christ primarily through deeds and lifestyles.⁸ The staff members of CMFIs, particularly loan officers, witness the love of Christ among clients by the way they lead their lives, including humility, commitment, integrity, stewardship, respect and care. Loan officers are expected to demonstrate these Christian virtues and traits in more tangible and concrete ways. Respecting appointments and commitments made, treating clients with respect even when things get rough, listening to and valuing clients’ voices and practicing ethical living, visiting and praying for them when they are sick or are mourning and celebrating. All these are part of living out the love of Christ in a tangible way among clients being served.

    C

    HURCH COLLABORATION

    The local church has been given an increasingly growing attention by donors and local governments as a vital partner in development. CMFIs recognize the socio-economic role the church has played throughout history, past and present. The church has made and is making critical contributions not only in the spiritual but also in the economic, social and political realms of societies. This is being increasingly recognized by both local governments and donor agencies which are all seeking to partner with the church in the fight against poverty. Because of their faith orientation, CMFIs do see themselves as intimately aligned with the church and have a natural inclination to collaborate with it in more effective and transforming ways in the delivery of services among people living in poverty.

    This is done in both direct and indirect ways. While some do it in both ways, others do it only indirectly. Some of the direct ways include channeling funding and recruiting clients through the church, giving loans to finance church projects and developing church capacity through training activities, including financial education.

    Some of the indirect ways relate to contributions made by CMFIs’ staff and clients. As more staff are employed and trained, they bring to the church the skills that they gain through CMFIs and make more financial contributions through increased tithes, offerings and donations. The same goes for clients whose skills and incomes increase as a result of their participation in CMF programmes, which, in turn, enable them to make increased tithes, offerings and donations.¹⁰

    The CMFIs benefit from the work of the local church as well. The church that specializes in teaching the Gospel contributes to spiritual transformation among CMFIs’ staff and clients through internal church activities and outreach. CMFIs also have access to the physical and organizational infrastructures and strong community links of local churches to increase their outreach.

    In short, CMFIs are not only in the business of disbursing and collecting debts, mobilizing savings, transferring money and providing insurance services and giving training. They are also in the business of enabling individuals, families and communities to produce more, have more and become better materially, socially and spiritually. CMFIs place people and transformation at the heart of microfinance. Their work contributes to the strengthening of the work of the local church and the work of the local church, in turn, strengthens the combined transformational impact of CMFIs on the lives of people living in poverty.

    BACKGROUND HISTORY OF MODERN MICROFINANCE

    MAKONEN GETU

    Modern microfinance has now been implemented globally as an anti-poverty intervention for over forty years. The global effort to

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